Copper slipped 2.3 per cent on Thursday as base metals tracked global equity markets lower, while interest rate decisions in Europe were awaited.
By 1047 GMT, copper for three month delivery on the London Metal Exchange had fallen to $3,405 (U.S.) a tonne from $3,415 at the close on Wednesday and compared with a session low at $3,338.
But copper prices have climbed about 5 per cent this week and hit a one-week high on Wednesday, boosted by better-than-expected macroeconomic data and hopes that the demand slump seen since August 2008 could be reaching a bottom.
“I still remain cautious because inventories are still increasing,” said Robin Bhar, senior metals analyst at Calyon. “It's symptomatic when you're at the bottom or near the bottom that you would expect some improvement in the (macro) data.”
“It doesn't mean we're going to go straight back up again – it's not a ‘V' – it could be a ‘U' or an ‘L' to bump along the bottom.”
The underlying negative sentiment was reinforced by weak U.S. and Asian equity markets overnight following a batch of disappointing corporate news. European shares were down 0.7 per cent.
Also on the radar, the Bank of England and European Central Bank were set to announce interest rates verdicts at 1200 GMT and 1245 GMT respectively.
Any surprise interest rate moves and comment from central banks could offer investors further clues as to the severity of the global economic decline.
Changes in borrowing costs also effect currency markets, which may in turn benefit or hurt miners that sell metals in dollars or euros.
Copper stocks rose 2,650 tonnes to 502,600 tonnes – the highest level since November 2003.
“Peak to trough, copper has declined 69 per cent but remains above the marginal cash cost of production,” said Morgan Stanley analysts in a note. “Our view is that copper can go lower.”
“Weak copper demand could cause inventory to double by year-end.”
Capping greater losses however, China is buying copper to gradually triple its state reserves to about 1 million tonnes, trade sources said. South Korea also plans to boost base metal reserves ahead of an expected economic recovery later this year.
“There are good reasons for the Chinese government to buy right now – the same arguments used by South Korea. More optimism is creeping into the market, helped by economic data and although things are still quite weak, they don't seem to be getting any worse,” Yingxi Yu, analyst at Barclays Capital said.
Aluminum fell 1.3 per cent to a low of $1,420 but was last at $1,440 from $1,439. The metal used in transport and packaging has come under pressure in recent months on news of falling car sales data from auto makers.
Most recently, U.S. auto parts suppliers are asking for up to $20.5 billion in federal aid to survive the worst industry downturn in decades, the Automotive News reported.
LME aluminum stocks jumped 22,550 tonnes to 2.86 million tonnes – after a surprise fall on Wednesday – to remain at record levels.
“Equity markets are driving market sentiment,” said Carsten Fritsch, an analyst at Commerzbank. “There have been some gains in recent days because of higher stock markets and also LME inventories ... We have seen some signs of stabilization.”
Nickel was at $11,600 from $11,750 at the close on Wednesday, lead at $1,180 from $1,190 and zinc at $1,178 from $1,180.
Korea Zinc, the world's second-largest refiner of the metal, said its 2009 sales could fall by as much as 38 per cent, weighed down by a 10 per cent cut in output and soft prices.
